Craig Effron,Co-Founder, Scoggin Capital

(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)

CRAIG EFFRON,CO-FOUNDER, SCOGGIN CAPITAL,.IS INTERVIEWED ON BLOOMBERG TV

JANAURY 19, 2012

SPEAKERS: ADAM JOHNSON, BLOOMBERG NEWS ANCHOR

CRAIG EFFRON,CO-FOUNDER, SCOGGIN CAPITAL

16:47

ADAM JOHNSON, BLOOMBERG NEWS ANCHOR: Money masters. They're the big names with the big money. It's what we've been talking about, this new series where we take you inside the offices of some of the smartest hedge funds on the Street. Well this week we profile Scoggin Capital's Craig Effron. His $1.8 billion fund has had only one down year out of the past 24. I sat down with Effron a couple of weeks ago to find out how he does out year after year. Have a listen. This is a good.

(VIDEO PLAYING)

JOHNSON: Craig Effron and Curtis Schenker are not your typical hedge fund guys. They started in the rough and tumble commodity trading pits. They've managed to stay in business for over 20 years and they share the same desk.

CRAIG EFFRON,CO-FOUNDER, SCOGGIN CAPITAL: Since we both know that we're not geniuses, we have to assume there's certain karma to our success. We believe one of them is the desk.

JOHNSON: Surrounded by photos and mementos of their lifelong friendship, the two work side by side every day.

CURTIS SCHENKER, CO-FOUNDER, SCOGGIN CAPITAL: What's the (inaudible) in the euro?

EFFRON: You're looking at it right now more or less. We know each other's thoughts before they say it. We don't even talk. We just say yep. Okay.

SCHENKER: And I can look at his face, pick up a phone and say to him, "Don't do that," because I know what he's about to do.

JOHNSON: The partnership has done well. Only one down year out of 24, 2008, and they recouped the losses within 14 months.

EFFRON: There's on voodoo in what we do. We (inaudible) the industry. I read the same papers you do. My analysts read reports. They speak to brokers. They speak to friends. The trick is how do you take the idea that everyone else is seeing and turn that into profitability that no one else is doing?

JOHNSON: Their name, Scoggin, is derived from the summer camp where they met as kids.

SCHENKER: I was 10. Craig was 9, and I was running for captain of color war (ph). And Craig helped me get elected, and the friendship began.

JOHNSON: They reconnected in college and worked together at the New York Mercantile Exchange, but eventually day trading gave way to investing and commodities to stocks and bonds.

SCHENKER: When I look at an investment, I'm always thinking what's the downside? What can we lose here? Craig's perspective is we're here. We have to make money. Sitting around saying no to everything doesn't work.

JOHNSON: Which makes this market especially tough.

EFFRON: The markets currently, as I like to say, are more of a behavioral science test than they are a financial analysis. Whether you like company A, B or C, they're all going the same direction every day. So there's no real need to be a great stock picker. You need to be a mind reader.

JOHNSON: And sometimes doing nothing is the right thing.

EFFRON: So we are currently I would say well under invested. We're 30 percent in cash. It is the kind of time when you need to be protecting assets, not trying to be a cowboy.

JOHNSON: There's a lot of distress in the world. Are you putting money into distressed assets?

EFFRON: We are believers that the European situation will result in a bunch more debt being offered by European banks. Our one fear is that banks are going to be told to raise money. And they can do that in three ways. They can sell stock, which they won't do because stocks are trading at well below their book value. They can sell assets, like loans, which we hope they do. Or the third thing, which is our fear, is that they're going to stop lending and just let the loans on their books roll off because Europeans banks have a tendency not to like to take losses. So there's another hit to be taken. Sovereigns we're going to be short, I'm sure. We're short France now. We're short Italy. We're short Spain. We're short Hungary. We're short Brazil. We're short a lot of things. Not crazy amounts, just enough where we feel it's a proper hedge. We're short Japan. We're short China.

JOHNSON: How bad is the underfunded pension exposure here in the US?

EFFRON: We think it's the next front page news after Europe comes off. It's - it's not only companies. It's municipalities and states as well. It's getting worse.

SCHENKER: We sell short 126 Balkan (ph). Can you imagine if we'd done this for 25 years?

JOHNSON: Any advice that comes out of this long, prosperous relationship for other businesses based on partnerships?

EFFRON: The reason why this works so well is Curtis and myself do not take ourselves seriously. We found this business that no one knew what it was by accident. We happened to be in the right line at the right time. It's not as though we planned on it. It just happened.

JOHNSON: Do you think that there are any second generation partnerships to come out of the kids?

EFFRON: This is Alexa. This is Ally. And we have sons as well, but we're thinking daughters might be the way to go for the next generation.

(END VIDEO)

16:51

***END OF TRANSCRIPT***

THIS TRANSCRIPT MAY NOT BE 100% ACCURATE AND MAY CONTAIN MISSPELLINGS AND OTHER INACCURACIES. THIS TRANSCRIPT IS PROVIDED "AS IS," WITHOUT EXPRESS OR IMPLIED WARRANTIES OF ANY KIND. BLOOMBERG RETAINS ALL RIGHTS TO THIS TRANSCRIPT AND PROVIDES IT SOLELY FOR YOUR PERSONAL, NON-COMMERCIAL USE. BLOOMBERG, ITS SUPPLIERS AND THIRD-PARTY AGENTS SHALL HAVE NO LIABILITY FOR ERRORS IN THIS TRANSCRIPT OR FOR LOST PROFITS, LOSSES OR DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THE FURNISHING, PERFORMANCE, OR USE OF SUCH TRANSCRIPT. NEITHER THE INFORMATION NOR ANY OPINION EXPRESSED IN THIS TRANSCRIPT CONSTITUTES A SOLICITATION OF THE PURCHASE OR SALE OF SECURITIES OR COMMODITIES. ANY OPINION EXPRESSED IN THE TRANSCRIPT DOES NOT NECESSARILY REFLECT THE VIEWS OF BLOOMBERG LP.

[Copy: Content and programming copyright 2012 BLOOMBERG, LP. ALL RIGHTS RESERVED. Copyright 2012 CQ-Roll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of CQ-Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.]

For more Bloomberg Multimedia see {AV [GO]}